Income Tax Settlement Commission is
a premier Alternative Dispute Resolution (ADR) body in India. Its mandate is to
resolve tax disputes in respect of Indian Income Tax & Wealth Tax Laws
between the two disputing parties, Income Tax Department on one side and
litigating tax payer on the other.
This
institution was set up in 1976 by the Central Government on the recommendations
of the Direct Taxes Enquiry Committee (1971) set up under the Chairmanship of
Justice K.N. Wanchoo, the retired Chief Justice of the Supreme Court of India.
The Wanchoo Committee had conceived of the Settlement Commission as a mechanism
to allow a one-time tax evader or an unintending defaulter to make clean breast
of his affairs. At present, there are four benches of the Commission located at
New Delhi, Mumbai, Kolkata and Chennai.
The settlement mechanism allows taxpayers to disclose additional Income before it over and above what has been already disclosed before the Income tax Department. The applicant has to pay full amount of tax and interest on the additional income disclosed before the Commission, before filing the application. The Commission then decides upon the admissibility of the application and in case of admitted applications, carries out the process of settlement in a time bound manner by giving opportunity to both parties.
The Commission is required to pass the Settlement order within 18 months of filling of the application. It has wide power of granting immunity from Penalty and prosecution, which are major sources of litigation. The orders passed by the Commission are final and conclusive.
At present the benefit of the settlement mechanism can be availed by a taxpayer only once in life-time, who has made the first application on or after1st June, 2007.
The settlement mechanism allows taxpayers to disclose additional Income before it over and above what has been already disclosed before the Income tax Department. The applicant has to pay full amount of tax and interest on the additional income disclosed before the Commission, before filing the application. The Commission then decides upon the admissibility of the application and in case of admitted applications, carries out the process of settlement in a time bound manner by giving opportunity to both parties.
The Commission is required to pass the Settlement order within 18 months of filling of the application. It has wide power of granting immunity from Penalty and prosecution, which are major sources of litigation. The orders passed by the Commission are final and conclusive.
At present the benefit of the settlement mechanism can be availed by a taxpayer only once in life-time, who has made the first application on or after1st June, 2007.
Procedure
for Filing Settlement Application
·
Settlement application is to be
filed only in the prescribed Form No.34-B
notified under the Income Tax Rules, 1962.
·
The form has to be signed by the
applicant himself.
·
The Form has to be properly filled
up. An incomplete Form is liable to be rejected.
·
In order to be admitted by the Commission, full amount of tax is to be paid
alongwith interest payable till the date of admission
·
The application
can be made personally or by post.
The applicant or his authorized representative can make application in person.
Application can also be sent by registered post addressed to the Secretary.
However in case of a postal application, the date of receipt in the Commission
shall be treated as date of application.
·
The application can be made either
to the Secretary at the headquarters of the Commission at New Delhi or to the
Secretary of the Additional Bench within whose jurisdiction his case falls or
to an authorized officer of the Commission.
·
In order to be admitted by the
Commission, an application should be accompanied by the proof of payment of
additional Tax (including interest under section 234A, 234B and 234C on it till
the date of filing of application).
·
The application is to be accompanied
by a copy of self (-) attested challans and other documents as evidence in
support of payment of tax and interest by the applicant.
·
The settlement application shall be
presented in person or by registered post to the Secretary or an authorised
officer of the Bench within whose jurisdiction the case falls. A settlement
application sent by post shall be deemed to have been presented on the day on
which it is received in the office of the Commission.
·
An authorized representative
can also make application in person. An “authorised representative” means a
person authorised by the applicant in writing to appear on his behalf, being:
o A person related to the applicant in any manner, or a person
regularly employed by the applicant; or
o Any officer of a Scheduled Bank with which the applicant
maintains a current account or have other regular dealings; or
o any legal practitioner who is entitled to practice in any
civil court in India; or
o an accountant within the meaning of the Chartered
Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any
person who by virtue of the provisions of sub-section (2) of section 226 of the
Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an
auditor of companies registered in that State.
o Any person who has passed any accountancy examination
recognised in this behalf by the Board, or
o any person who has acquired such educational qualifications
as prescribed by the Board.
Admission of the
Application
An application can be rejected by the Commission during the
course of proceedings under section 245D (1) within 14 days of filling of the
Settlement application. If the application is not rejected by the Commission
within 14 days, it is deemed to have been admitted by it.
The
Commission can reject the application, if the applicant does not satisfy the 3
essential conditions namely:
(1) to disclose an additional amount of income tax before the Commission, which is at least Rupees ten lakhs (Rs. 50 Lakhs for specific person on the case of Search and Seizure cases);
(2) the applicant should not have made another settlement application, after 1st June 2007, which has been allowed to be proceeded with; and
(3) no assessment order should have been passed by the concerned income tax authority for the assessment year for which you are approaching the Commission and the statutory time-limit for passing of assessment order for that year has not lapsed.
Further, an application not accompanied by the proof of payment of full amount of additional tax and interest and the prescribed fee of Rs. 500/- is also liable to be rejected. A copy of the application is to be sent to the concerned income tax Authority on the date of application in the prescribed form no. 34 BA, failing which also it may be rejected.
After the application has been admitted, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D (2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by the Commissioner, or on the basis of satisfaction of the Commission, on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report.
The Commission is required to give an opportunity before rejecting the application under section 245D (1).
·
In case there is any defect of the
above nature, the application is returned to the applicant pointing out the
defects, for re-submission after removing the same. If the application does not
suffer from any of the defects mentioned above, the same is entered in the
register and a distinctive file number (also called a registration No.) is
allotted and the applicant is informed about it through letter. It is then
closely scrutinised in accordance with the check-list devised for the purpose.
If
the application does not suffer from any of the defects mentioned above, the
same is entered in the register and a distinctive file number (also called a
registration No.) is allotted by the technical section of the concerned Bench
of the Commission. The applicant is informed about it through letter.
Validation of the
Application
After the application has been admitted, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D (2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by the Commissioner, or on the basis of satisfaction of the Commission, on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report.
The Commission is required to give an opportunity to the applicant before treating the application as invalid under Section 245D (2C).
Procedure for settlement of
case
Once an application has been held as valid, the Commission forwards the confidential part of the application to the Commissioner calling for his report under Rule 9 of the Income Tax Settlement Commission (procedure) Rules, 1997. This report is to be submitted by the Commissioner within 45 days. The Commission can allow further time, if needed by the Commissioner depending upon the facts of the case. Upon receipt of the Rule 9 Report, a copy of the same is sent to the applicant by post for submitting rejoinder on such report. A copy of rejoinder sent by the applicant is shared with the Commissioner.
The officers of the Commission then issue notice and fix hearing on a particular day and at a specified time. On the day of hearing, the applicant or his authorised representative and the Commissioner of Income Tax (or Assessing Officer) or his representative, namely Commissioner of Income Tax (Departmental Representative) appear before the Bench of the Settlement Commission. The Commission may ask the parties to further produce documents and submission. It may also ask the Commissioner to carry out further inquiry
After considering both
sides, the Commission then passes the final settlement order under Section 245D
(4), in writing. The settlement order provides for the terms of settlement
which includes determining the amount of additional tax and interest thereon
and the manner of payment. It also provides for levy of penalty, or waiver from
penalty under the Income Tax Act or the Wealth Tax Act. The Settlement order
under Section 245D (4) can be rectified by the Commission to correct mistakes
apparent from records within 6 months of the order. However, where the effect
of the rectification is to alter the tax liability of the applicant, due
opportunity has to be given to the applicant as also the Commissioner.
FAQ's
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1. What is meant by Settlement in
respect of tax disputes? How is it different from the appellate process?
Settlement of disputes relating to Income Tax and Wealth Tax is based on the objective of dispute resolution Alternate. It is in the nature of mediation or arbitration. The Settlement orders passed by the Income Tax Settlement Commission are final and conclusive in nature The application for settlement can be made only during the pendency of the assessment proceedings, whereas an appeal can be filed only after conclusion of assessment proceedings, against an order of assessment. For approaching the settlement commission, an applicant is required to disclose income which he has not disclosed before the Income Tax Department and also to pay applicable tax and interest on it before filing the application. No such conditions are needed for filing an appeal. An application for settlement is statutorily required to be disposed of within 18 months failing which the same is abated to the concern Income Tax Authority. There is no statutory time limit for disposal of an appeal. 2. What is the Scope of Settlement made by Income Tax Settlement Commission? The Income Tax Settlement Commission conclusively decides the amount of tax and interest to be paid by the applicant in respect of tax disputes relating to the assessment years for which an applicant has approach the Commission. It also has powers to grant immunity from levy of penalty or institution of proceeding for prosecution under the Income Tax Act, 1961. However, no such immunity is available where the proceedings for prosecution were initiated before filing of settlement application. An immunity granted by the Commission is liable to be withdrawn where the Commission subsequently finds that the application had concealed material facts or given false evidence during the settlement proceedings. The order of settlement passed by the Settlement Commission provides for the terms of settlement including any demand by way of tax, penalty or interest and also provides for the manner in which such demand is to be paid. Such an order shall also address other matters to make the settlement effective. The final settlement order of the Settlement Commission is applicable for the case of the particular applicant only and its ratio is not applicable for other cases and for proceedings before other authorities. 3. Is the Income Tax Settlement Commission part of the Income Tax Department? No. the Income Tax Settlement Commission is an independent quasi-judicial authority. It is an attached office of the Department of Revenue, only for its administrative matters. 4. At what Stage of tax disputes can I approach Settlement Commission? An applicant can approach the Income Tax Settlement Commission in respect of a particular assessment year only if no assessment order is passed by the concerned income tax authority and the statutory time-limit for passing of assessment order for that year has not lapsed. The proceedings are considered to be pending from the first day of the assessment year and it is not needed that a return of income is filed or a notice for scrutiny is issued before failing of application. 5. How do I become eligible for approaching Settlement Commission? Am I supposed to pay any tax beforehand? The First condition that you need to satisfy for approaching the settlement Commission is that you have to disclose an additional amount of income tax before the Commission which is at least Rupees ten lakhs. This does not include the amount of interest chargeable on such tax. For cases involving Search and seizure assessment proceedings, the additional amount of income tax to be disclosed is at least Rupees fifty lakhs. You are also required to pay the entire amount of additional tax and interest before filling the Settlement application and attach the evidence of payment. The Second essential condition is that you should not have made another settlement application, after 1st June 2007, which has been allowed to be proceeded with. The Third essential condition is that no assessment order should have been passed by the concerned income tax authority for the assessment year for which you are approaching the Commission and the statutory time-limit for passing of assessment order for that year has not lapsed. An assessment order is considered to be passed on the date it is served on the Tax Payer. There are other procedural requirements such as payment of prescribed fees and informing the concerned Assessing officer on the same date till the prescribed Form no.34 BA. 6. How do I file application for Settlement? Settlement application is to be filed only in the prescribed Form No.34-B notified under the Income Tax Rules, 1962, which is to be signed by the applicant himself. The application can be made personally or by post. The applicant or his authorized representative can make application in person. Application can also be sent by registered post addressed to the Secretary of the concerned Bench of the income tax Settlement Commission. The application should be accompanied by the proof of payment of additional Tax and interest under section 234B and 234C on it. The interest on the additional tax is chargeable till the date of admission of the application. The application has to be accompanied by a copy of Challans of payment of tax which have to be attested by the applicant. The application is also to be accompanied by the evidence of payment of the prescribed fee.At present the Amountof the fee is Fixed at Rs. 500/-. 7. When can a Settlement application be rejected? What are the Consequences of rejection? An application can be rejected by the Commission during the course of proceedings under section 245D (1) within 14 days of filling of the Settlement application. If the application is not rejected by the Commission within 14 days, it is deemed to have been admitted by it. The Commission can reject the application, if the applicant does not satisfy the 3 essential condition mentioned in answer no. 5 above. Further, an application not accompanied by the proof of payment of full amount of additional tax and interest and the prescribed fee of Rs. 500/- is also liable to be rejected. A copy of the application is to be sent to the concerned income tax Authority on the date of application, failing which it may be rejected. An applicant whose application has been rejected under section 245D (1) can still file another application for settlement. 8. Can I withdraw Settlement application after filing it? No, an applicant cannot withdraw the application after filling before the Settlement Commission. 9. Who can file Settlement application on my behalf? (i) You can make application by registered post addressed to the Secretary of the concerned bench of the settlement commission. However in case of a postal application, the date of receipt in the Commission shall be treated as date of application. (ii) On your behalf, an authorized representative can also make application in person. An "authorised representative" means a person authorised by you in writing to appear on your behalf, being:
·
A person
related to you in any manner, or a person regularly employed by you; or
·
Any officer
of a Scheduled Bank with which you maintain a current account or have other
regular dealings; or
·
any legal
practitioner who is entitled to practice in any civil court in India; or
·
an accountant
within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and
includes, in relation to any State, any person who by virtue of the provisions
of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is
entitled to be appointed to act as an auditor of companies registered in that
State.
·
Any person
who has passed any accountancy examination recognised in this behalf by the
Board, or
·
any person
who has acquired such educational qualifications as prescribed by the Board.
10. How long does the admission process take? The application filed by you is considered admitted and allowed to be proceeded with if it is not rejected by the Commission within 14 days under section 245D (1). After this, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D(2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by him, or on the basis of its satisfaction on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report. The Commission is required to give an opportunity before rejecting the application under section 245D (1) or before treating the application as invalid under Section 245D (2C). 11. How does the Settlement process operate? How long does it take? Once a Settlement application has been held as valid, the Commission shares the confidential part of the application with the Commissioner of Income Tax and calls for his reports within 45 days under rule 9. A copy of this report is shared with the applicant to allow him to give rejoinder. The Commission takes into account both and provides opportunity to both sides, i.e. the Income Tax Department and the applicant by fixing hearings on different dates. The Commission is required to pass the final Settlement order under section 245 D (4) within 18 months on the application. 12. What happens if the Settlement Commission is not able to pass Settlement application within 18 months? If the Settlement Commission is not able to pass Settlement application within 18 months, the case gets abated to the concerned income tax Authority. 13. How do I calculate additional Tax for filling the Settlement application? This will depend upon whether the settlement application relates to only one previous year or more and whether any return of income for the relevant previous year(s) has been filed or not.
·
Where the
income disclosed in the application relates to only one previous year and if
the applicant has not furnished a return in respect of the total income of
that year, then, tax shall be calculated on the income disclosed in the
application as if such income were the total income;
·
Where the
income disclosed in the application relates to only one previous year and if
the applicant has furnished a return in respect of the total income of that
year, tax shall be calculated on the aggregate of the total income returned
and the income disclosed in the application as if such aggregate were the
total income. This shall be reduced by the amount of tax calculated on the
total income returned for that year. The balance shall be the additional
amount of tax.
·
Where the
income disclosed in the application relates to more than one previous year,
the additional amount of income-tax payable in respect of the income
disclosed for each of the years shall first be calculated in the manner given
in (i) and (ii) above.
14. How do I calculate the interest amount on the additional tax? For calculating interest under section 234B & 234C of the Income Tax Act, 1961, calculate additional tax as explained in answer no. 13 above. Check up whether you were liable to pay advance tax under section 208 or not. If you were liable, calculate interest for default in payment of advance tax under section 234B and for deferment of advance tax under section 234C, for each assessment year included in the settlement application, separately.
·
(1) The
interest for default in payment of advance tax under section 234B is to be
calculated at the rate of 1% of the amount of additional tax for every month
or part of a month included in a period starting from the 1st day of the
April of the assessment year and ending with the date of filing settlement
application.
·
(2) For
calculating the interest for deferment in payment of advance tax under
section 234C, you have to work out the shortage in payment of advance tax as
per the prescribed schedule.
(i) In case of a company, during a financial year, advance tax is to be paid in the following manner:
(ii) In case of all tax payers other than a company, during a financial year, advance tax is to be paid in the following manner:
For calculating the interest under section 234C for each year included in the settlement application, calculate the shortfall in payment of advance tax against the additional tax calculated as explained in answer 13 above for each scheduled date above. Calculate 1% of the shortfall, wherever occurring, for a period of 3 months. For the exact manner of calculation of interest, please refer sections 234B & 234C. 15. Once I file a settlement application, do I need to comply with the directions of the Income Tax Department for the relevant assessment years? Does the jurisdiction of Income Tax Department continue over me or not?
Once
you file an application before the settlement Commission, your jurisdiction
for the purpose of Income Tax Act and the Wealth Tax Act, gets shifted to the
Income Tax Settlement Commission for the assessment proceedings for which you
have filed settlement application. However, sometimes Income Tax Settlement
Commission authorises the Commissioner of Income Tax to carry out specific
investigation to assist the Income Tax Settlement Commission in the matter.
You may however like to verify whether the Commissioner has been authorised
by the Income Tax Settlement Commission or not.
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Now
let us understand the section with latest decision of various court.
(a)
Merely because return was accepted
under section 143(1), case of assessee cannot be deemed to be pending for
assessment only because final order of assessment under section 143(3) was not
passed. Assessments had become time-barred without any notice under section
143(2) and even final time-limit for passing orders, even if such notices were
issued, had expired. Assessee’s application was not maintainable.(S.
143(1)(143(2), 245A(b), Article 226 of Constitution of India ) . Refer, CIT v
Income-tax Settlement Commission & ors, 210 Taxman 529 .
(b)
Applicant has no right to revise application.
Refer, Ajmera Housing Corporation v CIT, 326 ITR 642.
(c) Once an application for admission
u/s 245C is filed before the Hon’ble Settlement Commission, then the said
application must be dealt with in accordance with law, i.e., refer to the
contentions of the petitioners, the contention of the Revenue and then an objective,
considered and a reasoned decision has to be taken. This is only when the stand
of the two sides are fully noticed and considered before an order under Section
245D(2C) is passed. The petitioners must come clean and be honest and admit
their faults and cannot but declare their true and full undisclosed income.
However, their plea and explanation that their declarations are genuine and
truthful, cannot be rejected without a legitimate and fair consideration. The
two searches were conducted in earlier years and not in the period relevant to
the Assessment Year 2012-13. The Settlement Commission’s order has not referred
to any specific issues and documents or made references to the contentions of
the Commissioner. Facts stated are incorrect or that Commissioner had not
objected to the stock reduction is not adverted to. May be the applications
deserve dismissal for the said reasons but full factual position should be
noted, before opinion is formed whether there has been full and true
disclosure. There has been error and failure in the decision making process and
the failure vitiates the order passed. In view of the above the impugned
setaside and an order of remand was passed. The proceedings directed to be
commenced from the same stage as on the last date of hearing, and the direction
given to rehear the the parties, and a fresh order without being influenced by
the earlier order will be passed. The Settlement Commission will deal with the
application in accordance with law. The effect of the present order is that the
settlement application will be treated as pending and necessary consequences in
law will flow. Merits of the case will be examined, without being influenced by
the present order. Nothing stated in this decision, will be treated as binding
opinion on merits of the case of the parties. Refer,
MARC Bathing Luxuries Ltd. v. ITSC, 364 ITR 64.
(d) The error in the
order of the Commission in the present case lies in permitting the
application to proceed without that satisfaction being recorded by the
Commission, which is a fundamental aspect which goes to the
root of its jurisdiction to entertain an application under
Section 245C. The Commission has proceeded on the basis that at this stage it
cannot hold a view that the income offered in the statement
of facts is not a true and full disclosure. In the
same vein, the Commission was of the view that the subject of true and full
disclosure is open for examination in the proceedings under
sub- section 4 of Section 245D. In holding this, the Commission has moved over
to the stage of Section 245D(4) without entering upon the fundamental
issue as to whether the application was or was not invalid. This exercise had
to be carried out by the Commission at the stage of the proceedings under
sub-section 2C of Section 245D on the basis of the report submitted by the
Commissioner and after hearing the applicant. The Commission has abdicated the discharge of that obligation at that stage, by deferring its
consideration at a later stage. The Commission, in our view, was completely in
error in holding that unless it is established by a competent authority that
the purchases are all bogus, that the application at this stage could not be
held to be invalid, though the department may have in its possession certain
evidence indicating the fact that the income has not been truly and fully
disclosed, or that the quantum of income disclosed in the application in
comparison to the claim of the department is meager. The Commissioner had
submitted his report under the provisions of sub section 2B of Section 245D.
The Commission could not have declined to determine as to whether the
application fulfilled the requirements or prerequisites of a valid application
under Section 245C(1). We may clarify, however, that we are not for the
purposes of this case inclined to hold that the Commission cannot at a later
stage of the proceedings reject the application where facts come to its
knowledge even subsequently that there is either a
suppression of full and true material facts, a misstatement or failure on the
part of the assessee to make a full and candid disclosure. The existence of
such a power at a subsequent stage cannot obviate the discharge of a statutory
duty to determine whether the jurisdictional requirements are fulfilled, once a
report is received under sub section 2C of Section 245D. The Commission has to
consider as to whether or not the application is invalid.
For
these reasons we are of the view that the impugned order of the Settlement
Commission is unsustainable and would have to be quashed and
set aside. We accordingly allow the petition by setting
aside the impugned order of the Settlement Commission dated 9 November 2012 and
restore the proceedings back to the Commission for reconsideration in terms of
the observations contained in this judgment. Rule is made
absolute in the above terms. There shall be no order as to costs. Refer, CIT
Vs. Income Tax Settlement Commission(ITSC, WP No. 3900 of 2013, Date of
decision: 13.06.2013, Bombay High Court
(a) Assessee cannot withdraw appeal. Rejection
of application for settlement on ground that appeal. Refer, M. Loganathan v.
ITO, 350 ITR 373.
(b) The
respondents had filed applications to the Settlement Commission. The ITSC had
called for CITs report, wherein the CIT had objected to admission of the
applications. The objections were upheld and the applications were not allowed
to be proceeded with. After the amendment in 1991 of Section 245D, whereby
sub-section 1A was omitted altogeather, the respondents made fresh applications
in regard to the same years for which they had applied earlier, and the
Settlement Commission entertained these applications by following the Special
Bench decision in case of Birumal Gaurishankar Jain and Co.(195 ITR 792).
Against this decision, the department appealed to the Supreme Court.
Held, that it was clearly a situation where the applications of the respondents were not proceeded with earlier because of the objections raised by the Commissioner under sub-section 1A of section 245D. Having regard to the fact that the said sub-section was removed from the statute book, subsequent to 1991, there was no reason why the ITSC could not entertain such applications. This was not a case of review by the ITSC but a case of fresh application made subsequent to the amendment of the section, when the objections of the Commissioner were not to be called for or taken into account. Refer, CIT vs M/s Bhaskar Picture Palace, 1999 (10) SC 563.
Held, that it was clearly a situation where the applications of the respondents were not proceeded with earlier because of the objections raised by the Commissioner under sub-section 1A of section 245D. Having regard to the fact that the said sub-section was removed from the statute book, subsequent to 1991, there was no reason why the ITSC could not entertain such applications. This was not a case of review by the ITSC but a case of fresh application made subsequent to the amendment of the section, when the objections of the Commissioner were not to be called for or taken into account. Refer, CIT vs M/s Bhaskar Picture Palace, 1999 (10) SC 563.
(c) Where
the Settlement Commission summarily rejected the application on the ground that
through out the proceedings, the stand of the concerned applicants was that
they were assessed under the Act and that, subsequently, they had switched
their stand to the effect that they were not genuine partnership firms but were
benamis of the applicant AOP, and that such a stand was an after-thought.
Held that when it was nobody's case that the applicants were not assessees under the Act since years and if they came forward with applications under section 245C claiming to disclose the income and if their applications were maintainable under section 245C, the Commission could not have summarily rejected these applications only because according to the Commission, AOP was an invention.
What is made conclusive is the order of settlement passed under sub-section (4) of section 245D. The order under sub-section(4) of section 245D would be an order on merits after the Commission admits the settlement application under section 245D(1) and proceeds further and follows various steps contemplated by sub-section (2) and (3) of section 245D and then reaches the final stage of passing appropriate orders on merits on the Settlement claims as per Section 245D(4). It is such an order under section 245D(4) which is made conclusive by section 245-I. Therefore, on the express language of this section, no conclusiveness attaches to the order passed by the Commission under section 245D(1) either admitting the application for being processed further or rejecting the same summarily. But even that apart, the conclusiveness attached to such order, u/s 245I would be for the purpose of the Income tax Act and such conclusiveness cannot bar the constitutional remedy available to a party under article 227 of the constitution otherwise it would amount to amending the constitutional provisions by statutory provisions enacted by the Parliament. Refer, M/s Swadeshi Industries vs I T S C, 105 CTR 313 (Guj) (1992).
Held that when it was nobody's case that the applicants were not assessees under the Act since years and if they came forward with applications under section 245C claiming to disclose the income and if their applications were maintainable under section 245C, the Commission could not have summarily rejected these applications only because according to the Commission, AOP was an invention.
What is made conclusive is the order of settlement passed under sub-section (4) of section 245D. The order under sub-section(4) of section 245D would be an order on merits after the Commission admits the settlement application under section 245D(1) and proceeds further and follows various steps contemplated by sub-section (2) and (3) of section 245D and then reaches the final stage of passing appropriate orders on merits on the Settlement claims as per Section 245D(4). It is such an order under section 245D(4) which is made conclusive by section 245-I. Therefore, on the express language of this section, no conclusiveness attaches to the order passed by the Commission under section 245D(1) either admitting the application for being processed further or rejecting the same summarily. But even that apart, the conclusiveness attached to such order, u/s 245I would be for the purpose of the Income tax Act and such conclusiveness cannot bar the constitutional remedy available to a party under article 227 of the constitution otherwise it would amount to amending the constitutional provisions by statutory provisions enacted by the Parliament. Refer, M/s Swadeshi Industries vs I T S C, 105 CTR 313 (Guj) (1992).
(a)
Since the Settlement Commission did
not finally decide matter on merits while allowing the application of the
assessee to be proceeded with, and moreover, all contentions of both parties
would be gone into by Commission before passing any final order, impugned order
allowing application to be proceeded with did not require any interference.
Refer, CIT v. Income Tax Settlement Commission, 216 Taxman 246 (Guj.)(HC).
(b)
Question whether there has been full and true
disclosure can be determined at any stage of proceedings before Settlement
Commission. Refer, CIT v. ITSC, 360 ITR 407
(c)
Settlement commission can decide
application on the basis of a summary inquiry. Refer, Vishnubhai Mafatlal Patel Versus Assistant
Commissioner of Income-tax Special Civil Application Nos. 12060, 12061 &
12063 of 2012
(d) Interest under sections 234B can be
directed to be charged by the Settlement Commission only up to the order of admission of settlement application
under section 245D(1) and not up to the final order of settlement commission under section 245D(4).
The commission cannot reopen the concluded proceedings by invoking the proceedings under section 154
of the Act, to levy interest under section 234B that is not charged earlier in the order of settlement
particularly in view of section 245I. Refer, Brijlal and Others vs. CIT, 46 DTR
153(SC)
(e)
(a)
While granting immunity from
prosecution and imposition of penalty it is incumbent upon the Settlement
Commission to examine as to whether the criteria prescribed u/s 245C is wholly
complied or not; Settlement Commission having granted immunity from prosecution
and penalty without recording any finding as to whether there is deliberate
concealment of income or not, other of the Single Judge remanding the matter
for de novo adjudication does not suffer from any material irregularity or
illegality so as to warrant any interference by the Court in its appellate
jurisdiction. Refer, ING Vysya Bank Ltd. v. CIT, 76 DTR 193.
(a) Assessee's case was that it had
claimed depreciation which remained unabsorbed while passing order of
settlement, however Commission completely ignored said vital aspect of matter
and raised tax demand which was wholly impermissible. The Commission rejected
assessee's application holding that issue raised by assessee was a debatable
one and would amount to review of order passed under section 245D(4) which was
not permissible in law. Held since the issue raised by assessee was emergent
from face of record and did not require any minute examination of accounts,
application for rectification of impugned order should have been allowed by
Commission. Refer, Piramal Logistics (P.) Ltd. v. Income Tax Settlement
Commission, 216 Taxman 46(Mag.).
(b) Settlement Commission has jurisdiction
to declare its order as void. Refer, Chandragir
Construction Company v ITS, 10 Taxmann.com 155.
(c) It
cannot be prima facie said that the Settlement Commission can modify/recall its
order u/s 245D(1) of the Income tax Act 1961. Moreover, the review application
suffering from gross delay of 2 years, which was not explained in any manner,
whatsoever, was liable to be rejected. Refer, Shri Rakesh Kalia vs
ITSC, 105 Taxman 36 (Del).
(a)
order under challenge is cryptic and
is not focused on the issues and
contentions, which were raised by the assesse & hence matter remanded
for reconsideration. Refer, Marc bathing
Luxuries Ltd. .v. ITSC & Anr, 94 DTR 241.
(a)
Settlement Commission passed an
order under section 245D (4) with observation that Commissioner of Income Tax /
Assessing Officer may take such action as appropriate in respect of the matter
not placed before the Commission by the
applicant as per provision of section 245 F (4). Assessing Officer issued notice thereafter and made additions over and
above that sustained by Settlement Commission. The matter was taken up before the Tribunal, the
Tribunal deleted the additions made by the Assessing Officer. In an Appeals filed by the revenue the Court held
that, after passing the order by the Settlement Commission, no power vests in the Assessing Officer or any
authority to issue the notice in respect of the period and income covered by the order of the Settlement
Commission, except in the case of fraud or misrepresentation of facts. Assessing Officer therefore had no
power to issue notice in respect of the period and income covered by the order of Settlement Commission. Refer,
CIT v. Smt. Diksha Singh, 350 ITR 157.
(b)
Tribunal has the power to grant
unlimited stay of demand. Refer, Vodafone West Ltd v. ACIT, Ahmedabad ITAT.
(c)
Concealment penalty proceedings can
be stayed to await decision on quantum appeal so to avoid multiplicity of
proceedings & harassment to assesse. Refer, GE India Industrial Pvt. Ltd v.
CIT(A), Ahmedabad ITAT.
(d)
Section
245C is not a charging section but only a machinery provision. It is also not a
provision in the nature of appeal, etc. This provision enables an opportunity
to be given to an assessee if he chooses to approach the Settlement Commission
for a pecuniary settlement of his case subject to the fulfilment of the
requirements stipulated under this provision.
The expression 'case' has been defined in section 245A(b) of the Act. It will be noticed from the said provision that the application for settlement will have to contain a full and true disclosure of the applicants' income, which has not been disclosed before the Assessing Officer the manner in which such income has been derived, and the additional amount of income tax payable on such income. The proviso attached to section 245C(1) places a ban on making of a settlement petition unless two further requirements are complied with by the applicant. These are that the assessee has furnished the return of income which he is or was required to furnish under the Act: and the additional amount of income tax payble on the income disclosed in the application exceeds Rs 50,000/-. All the above conditions contemplated under section 245C(1) are in equa non for a valid application and in the absence of them or any one of them the petition for settlement will not be in order.
One of the requirements of a valid application under section 245C is that it should contain full and true disclosure, that the disclosure should be of income not disclosed before the Assessing Officer. The disclosure under section 245C(1) must be full and true, it cannot be half way, and the argument that an applicant was not required to disclose that part of his income which had not been detected by the revenue, is wholly unacceptable and is to be rejected.
If disclosure is made in a given case after assessee felt that game is over or when he has been pushed to wall and concealment of income has been established, such a disclosure may not be a disclosure as contemplated within mischief of section 245C(1). Where after hearing counsel for the parties the Settlement Commission rejected the settlement application filed by the petitioner under section 245C and gave reasons for the rejection, challenge to the order of the Settlement Commission on the ground that it was too cryptic and had been passed without considering the various contentions would not lie.
The power conferred on the Settlement Commission under section 245D is a quasi judicial power, and the discretion of the Commission is required to be exercised judicially.
By the Finance Act, sub section (1A) of section 245D, as it existed at that time, was deleted and by the same Finance Act, second proviso to sub-section (1) of section 245D was inserted. Under the pre-amendment provision, the Commissioner was entitled to object to the admission of a settlement application on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or any other sum chargeable or imposable under the 1922 Act or under the 1961 Act, has been established or is likely to be established by any tax authority in relation to the case. However, the Settlement Commission by virtue of the provisions contained under the proviso to sub section (1A) had the final say in as much as, if the Settlement Commission was not satisfied by the correctness of the objection raised by the Commissioner, the Settlement Commission had the discretion after giving the Commissioner an opportunity of being heard to allow the application to be proceeded with under sub-section (1) of section 245D.
After the deletion of sub-section (1A) the legislature only intended to do away with the procedural delays emanating from the section as it stood before its amendment by the Finance (No 2) Act 1991. The legislature did not intend and, in fact, abstained from curtailing the power of the Commissioner to raise an objection. The section, as it stands, now gives a wider power to the Commissioner to object on any ground whatsoever. The substantive powers of the Commissioner to raise an objection have not in any manner been withheld down but have, in fact, become wider by necessary implication. However, the second proviso to section 245D(1), was inserted simultaneously with the deletion of sub section (1A) which now vests with the Settlement Commission with the powers to proceed even without the report of the Commissioner if he failed to submit the report within the period prescribed under the second proviso to section 245D(1).
It is not possible to conceive of every situation in which the discretion which vests with the Settlement Commission is to be exercised in one way or the other. There is nothing in the amended provision of section 245D(1) which restricts the commission to reject an application for settlement on its being satisfied on the basis of the Commissioner's report or otherwise that a case of concealment has been established or concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading tax is likely to be established by the Income tax authorities in relation to a case.
Since section 245D gives jurisdiction to the Settlement Commission to proceed with the settlement application or to reject the same, the High Court has no jurisdiction to interfere except within the limited sphere in which the orders or quasi-judicial authorities are disturbed on the well-settled principle in exercise of writ jurisdiction by the High Court under Article 226 of the Constitution.
The High Court does not sit in appeal upon a decision of the statutory authority in exercise of its jurisdiction under Article 226. In exercise of its power of judicial review, the High Court is not concerned with the decision, but with the decision making process. It would not substitute its own view for the one which has been taken by the Settlement Commission having regard to the facts and circumstances of the case, even if the High Court were to come to different factual conclusions. A decision may be liable to be interfered with if it is shown that there is no nexus between the reason given and the decision taken by the Settlement Commission, or the order complained of, is without jurisdiction or in excess of jurisdiction, or the same is perverse causing manifest in justice, or is arbitrary. Refer, /s Raja Ram Industries vs ITSC, 81 Taxman 506 (1995) (Del).
The expression 'case' has been defined in section 245A(b) of the Act. It will be noticed from the said provision that the application for settlement will have to contain a full and true disclosure of the applicants' income, which has not been disclosed before the Assessing Officer the manner in which such income has been derived, and the additional amount of income tax payable on such income. The proviso attached to section 245C(1) places a ban on making of a settlement petition unless two further requirements are complied with by the applicant. These are that the assessee has furnished the return of income which he is or was required to furnish under the Act: and the additional amount of income tax payble on the income disclosed in the application exceeds Rs 50,000/-. All the above conditions contemplated under section 245C(1) are in equa non for a valid application and in the absence of them or any one of them the petition for settlement will not be in order.
One of the requirements of a valid application under section 245C is that it should contain full and true disclosure, that the disclosure should be of income not disclosed before the Assessing Officer. The disclosure under section 245C(1) must be full and true, it cannot be half way, and the argument that an applicant was not required to disclose that part of his income which had not been detected by the revenue, is wholly unacceptable and is to be rejected.
If disclosure is made in a given case after assessee felt that game is over or when he has been pushed to wall and concealment of income has been established, such a disclosure may not be a disclosure as contemplated within mischief of section 245C(1). Where after hearing counsel for the parties the Settlement Commission rejected the settlement application filed by the petitioner under section 245C and gave reasons for the rejection, challenge to the order of the Settlement Commission on the ground that it was too cryptic and had been passed without considering the various contentions would not lie.
The power conferred on the Settlement Commission under section 245D is a quasi judicial power, and the discretion of the Commission is required to be exercised judicially.
By the Finance Act, sub section (1A) of section 245D, as it existed at that time, was deleted and by the same Finance Act, second proviso to sub-section (1) of section 245D was inserted. Under the pre-amendment provision, the Commissioner was entitled to object to the admission of a settlement application on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or any other sum chargeable or imposable under the 1922 Act or under the 1961 Act, has been established or is likely to be established by any tax authority in relation to the case. However, the Settlement Commission by virtue of the provisions contained under the proviso to sub section (1A) had the final say in as much as, if the Settlement Commission was not satisfied by the correctness of the objection raised by the Commissioner, the Settlement Commission had the discretion after giving the Commissioner an opportunity of being heard to allow the application to be proceeded with under sub-section (1) of section 245D.
After the deletion of sub-section (1A) the legislature only intended to do away with the procedural delays emanating from the section as it stood before its amendment by the Finance (No 2) Act 1991. The legislature did not intend and, in fact, abstained from curtailing the power of the Commissioner to raise an objection. The section, as it stands, now gives a wider power to the Commissioner to object on any ground whatsoever. The substantive powers of the Commissioner to raise an objection have not in any manner been withheld down but have, in fact, become wider by necessary implication. However, the second proviso to section 245D(1), was inserted simultaneously with the deletion of sub section (1A) which now vests with the Settlement Commission with the powers to proceed even without the report of the Commissioner if he failed to submit the report within the period prescribed under the second proviso to section 245D(1).
It is not possible to conceive of every situation in which the discretion which vests with the Settlement Commission is to be exercised in one way or the other. There is nothing in the amended provision of section 245D(1) which restricts the commission to reject an application for settlement on its being satisfied on the basis of the Commissioner's report or otherwise that a case of concealment has been established or concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading tax is likely to be established by the Income tax authorities in relation to a case.
Since section 245D gives jurisdiction to the Settlement Commission to proceed with the settlement application or to reject the same, the High Court has no jurisdiction to interfere except within the limited sphere in which the orders or quasi-judicial authorities are disturbed on the well-settled principle in exercise of writ jurisdiction by the High Court under Article 226 of the Constitution.
The High Court does not sit in appeal upon a decision of the statutory authority in exercise of its jurisdiction under Article 226. In exercise of its power of judicial review, the High Court is not concerned with the decision, but with the decision making process. It would not substitute its own view for the one which has been taken by the Settlement Commission having regard to the facts and circumstances of the case, even if the High Court were to come to different factual conclusions. A decision may be liable to be interfered with if it is shown that there is no nexus between the reason given and the decision taken by the Settlement Commission, or the order complained of, is without jurisdiction or in excess of jurisdiction, or the same is perverse causing manifest in justice, or is arbitrary. Refer, /s Raja Ram Industries vs ITSC, 81 Taxman 506 (1995) (Del).
(e)
Settlement Applications not disposed
of by 31-3-2008 for reasons not attributable to the applicant cannot be treated
as having abated
S. 254D (4A) was amended by the Finance Act, 2007 to provide
that if in respect of an application filed before 1-6-2007, the Settlement
Commission did not pass a final order before 31-3-2008, the proceedings would
abate. S. 245HA (3) provided that the consequence of such abatement was
that the income-tax authorities could, in making the assessment, use all the
confidential material furnished by the assessee before the Settlement
Commission. The said provisions were challenged as being ultra vires Article 14
of the Constitution before the Bombay High Court. The Bombay High Court in the
case of Star Television vs. Union of India has held the followings:-
i.
The choice of 31-3-2008 as the
cut-off date was arbitrary & irrational
ii.
S. 245HA(3) which makes available to
the AO the hitherto confidential information furnished by the applicant has the
effect of severely prejudicing the assessee for no fault of his but
solely for the inability of the Settlement Commission to dispose of the
application by the specified date.
iii.
In order to save these provisions
from being struck down as being unconstitutional, they will have to be read
down as applying only to cases where the Settlement Commission is unable to
pass an order on or before 31-3-2008 for any reason attributable on the part of
the applicant. If in the writ petition, the applicant has urged that it was not
responsible for the non-disposal of the application and the same is not denied
by the revenue, the circumstance should be considered in favour of the
applicant;
iv.
Accordingly, the Settlement
Commission has to consider whether the proceedings have been delayed on account
of any reasons attributable on the part of the applicant. If it comes to the
conclusion it is not so, then it has to proceed with the application as if not
abated;
Refer, Star Television News Limited
Writ Petition No. 952 of 2008
Conclusion
The provisions of Chapter XIXA provides an avenue to tax
payer to settle contentious issues in his tax assessment. The process of settlement
can be set into motion only by an assessee. The condition of making full and
true disclosure is prescribed both at ntry point, as a precondition for valid
application, and again at exit point, as a condition for granting immunities
from penalty and prosecution. The importance of the application satisfying the
said condition has been explained by the judgment of Supreme Court in Ajmera’s
case 326 ITR 642. The opportunity granted by the Legislature to an assessee to
come clean can be availed off only if an assessee faithfully complies with the
conditions prescribed and is amenable to mend his ways.
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